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BI to reduce liquidity in 2022 as Fed signals taper
Bank Indonesia (BI) plans to begin reducing liquidity on financial markets next year, following signals from the Federal Reserve that it is likely to start retracting its “easy money” policy this year.
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Bank Indonesia (BI) Governor Perry Warjiyo speaks during a virtual press conference held after the central bank's two-day policy meeting on Jan. 21. (Courtesy of Bank Indonesia/-)
B
ank Indonesia (BI) plans to begin reducing liquidity on domestic financial markets next year, in response to signals from the United States Federal Reserve that it is likely to start retracting its “easy money” policy this year.
BI Governor Perry Warjiyo said on Monday that the bank planned to raise its benchmark seven-day reverse repo rate (7DRRR) by the end of 2022, among other measures.
He said the Fed had indicated a willingness to start reducing asset purchases before the end of the year but would likely hold the US benchmark rate until late 2022.
Read also: Fed's Powell in spotlight as markets await taper plans
“In terms of monetary policy, [BI] needs to recalibrate. Next year, we plan to begin reducing liquidity, which has been very loose,” Perry told lawmakers on Monday at a hearing before House of Representatives Commission XI overseeing financial affairs.
Perry’s remarks signaled a possible end to the loose monetary policy that has been in place since the COVID-19 pandemic struck Indonesia. BI has cut the 7DRRR six times since February of last year, bringing it to a record low of 3.5 percent to date, in an attempt to support economic recovery.
Despite the withdrawal, Perry said, BI’s plan would not negatively affect economic growth or the loan disbursement target for next year, noting that the country had had very loose liquidity since March 2020.
